The Competitive Advantage of Nations. – Book Review

The Competitive Advantage of Nations. – Book Review

THE HARDBACK edition of The Competitive Advantage of Nations, Michael Porter’s sprawling analysis of the contemporary economic world order, weighs in at slightly over three pounds–about the size of a nice bass. And cooked whole, with its formidable charts, appendices, footnotes, and bibliography intact, the book should glut all but the most data-starved readers. I wish I believed it would satisfy less quantitative needs.

No one will accuse Mr. Porter, a professor of business at Harvard, the author of three previous books on industrial competitivesness, and an advisor to the Reagan Administration, of aiming low. As its title suggests, the book is meant to be a contemporary equivalent of The Wealth of Nations, and the Free Press is marketing the volume as the new-forged version of Adam Smith’s world-transforming thunderbolt.

Like Smith, Mr. Porter has tried to synthesize the cold variables of material existence into a coherent system: he undertakes to envision the international economy as a dynamic whole, in which the fashionable notion of “competitiveness” becomes a core idelolgy. In Porter’s conception, the seemingly idiosyncratic behavior of global industries can be understood as progressive efforts which keep those industries’ home nations developing economically and socially.

It’s a pity that Mr. Porter didn’t take the time, as Voltaire would have advised, to write a shorter book. In the process of editing he might have honed and resolved the ideas gleaned from the massive research project on which he based this volume. While working on the Reagan Administration’s Commission on Industrial competitiveness, Mr. Porter came to the conclusion that “international competitiveness” was too poorly defined and undestood to be profitably debated. The central task he then set himself, he tells us, was “to explain why firms based in a nation are able to compete successfully against foreign rivals in particular segments and industries.” But this is to ask no more than how individual industries should be managed, and Mr. Porter became interested in a larger thesis–that national characteristics play a large role in determining the success of the industries based in any given country. He concluded that “while globalization of competition might appear to make the nation less important, instead it seems to make it more so.”

To help verify his ideas, Mr. Porter organized a multinational team of researchers who studied the industrial climate in ten different countries; he also assigned assistants to lay out detailed histories of four globally successful industries located in different parts of the developed world. What he discovered was that competitive companies, rather than sticking to previously successful management plans, or requiring advantageous production factors, constantly adapt themselves to their economic context. Manufacturers in Germany, for instance, have made the most of high-labor costs by automating as rapidly as possible; Japanese producers of consumer goods have pursued miniaturization in response to Japan’s severe space shortages. Not only do industries thrive in an atmosphere of “selective disadvantage,” they also seem to form in clusters–that is, more than one company in the same industry with the same home base will succeed internationally, and those companies will usually have globally competitive suppliers and consumers up and down their production chains. Industries, Mr. Porter determined, from their own ecologies.

As everyone knows, however, certain countries at certain times do a better job of fostering global competitors than others. Mr. Porter noted that such home countries enhanced their economic position by fostering an inherently competitive spirit within their industrial clusters. They do this, not through subsidies or protection but by providing their industries with the freest possible markets, discouraging mergers and monopolies, and regulating products sensibly, with an eye toward enhanced quality.

These are pragmatic “how-to-succeed-globally” observations that hardly overstep the bounds of common sense–or Mr. Porter’s own research. But “how” answers beg “why” questions: why are certain nations (most recently Japan) consistently willing to take the steps necessary to produce global competitors? To explain this Porter offers a theory of development that is surprisingly deterministics, and reminiscent of the spenglerian pessimism recently resurrected in Paul Kennedy’s The Rise and Fall of the Great Powers. Early in their industrial history countries exploit their factor advantages–low labor costs, abundant natural resources, or what have you. Success in basic manufacturing leads to investment and innovation, more sophisticated consumer demand, and a growing service sector. This progression ultimately results in a wealth-based economy in which complacency and financial manipulations replace productive enterprise. All Porter can say about the sequel to a wealth-driven economy is that “the resulting decline can be very protracted until something jars the economy out of it.”

Capitalism is a grand unity which somehow manges to assemble itself out of vital particulars. Though The Competitive Advantage of Nations gestures occasionally toward the greater political truths that have made market capitalism–the one enduring social order of this convulsive century–the book more often sinks into microtheory and conventional political prescriptions. It’s a commonplace that the United States needs more education and investment, as Mr. Porter is ready to suggest, and he is hardly the first to make a cogent argument for free trade. What is not at all clear is why as a society we seem unable to take the steps necessary to revive both our industrial and cultural positions in the world.

I was disappointed by more than Mr. Porter’s philosophical murkiness. Even by the appalling standards of academic literature, the book is dismally written. His language has the dry, stuffed, repellent feel of taxidermy. Theorists and scholars can’t always be superior stylists, but we are still searching for a rhetoric of capitalism that is as appealing to intellectuals as the incantations of socialism. As we were recently reminded, political reality is not simply about competence; it’s about ideology. Even Mr. Porter, in his chipper way, understands that America’s competitive decline has ideological causes that lie beyond the reach of academic economics.

No doubt enough people will skim The Competitive Advantage of Nations to allow the book some influence within the business community. And, as Mr. Porter’s admirable research suggests, business will have to be in the vanguard of any conceivable revival of American political culture. But he scarcely suggests how business leaders will inspire their managers or colleagues (not to mention their congressmen and Presidents) to abandon the cult of wealth for the culture of productivity. For that we will need a new economics, with the clarity of common sense and rhetorical authority of moral truth.

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